Posted by: Josh Lehner | April 17, 2019

Future Economic Growth in Oregon

Economic growth over the long run is determined by the number of workers and how productive they are. The main reason Oregon outperforms the typical state over the entire business cycle is our stronger population growth. In particular, the influx of young, skilled households boosts our economic potential as our working-age population increases faster than in much of the country.

The big economic problem today is that demographics have turned into a major headwind. First, overall population growth is as slow as we have experienced in the past hundred years. It is not expected to pick up significantly either. Second, Baby Boomer retirements mean the working-age population is growing even slower and in many places around the country it is shrinking.

Our office’s measure of the potential labor force — taking demographics and adjusting based on participation rates by age — is expected to increase in the 2020s at half the rate Oregon experienced in the 1990s and one-third the rate as back in the 1970s when the Boomers entered into the workforce. Our economy will continue to grow and outstrip the typical state. However this growth will be significantly slower than we have become accustomed to. This has been the underlying character of our office’s forecasts for years as these trends directly translate into fewer job gains and slower growth in business sales and tax revenues.

Furthermore, these demographic headwinds have profound effects on nearly every economic measure we have, as is laid out in a great, new report from the Economic Innovation Group. (See Neil Irwin’s NYT article of Richard Florida’s post for good summaries.) The following quote from the report highlights the key points and issues:

The demographic decline facing large parts of the country are not benign. Demographic decline and population loss are not just symptoms of place-based economic decline, they are direct causes of it… Population loss reverberates through housing markets and municipal finances. Low-growth places have weaker labor markets and suffer from less economic dynamism.

Much of the report focuses on not just the demographic challenges, but how they vary across the nation. As the authors note, roughly half of U.S. counties lost population over the past decade and 80% lost prime working-age population (25-54 years old). Here in Oregon it is not quite as dire as “only” 3 of our 36 counties saw minor population losses during the past 10 years (Grant, Harney, Sherman). Relative to the rest of the country, these counties fall more in the middle of the distribution given the worse trends in the Northeast and Midwest. Oregon demographics as a whole are better off than much of the country. We are seeing stronger population gains and more widespread gains across the state. That said, Oregon is not immune and face the same big picture issues, albeit to a slightly less degree.

In terms of the outlook, demographics are going to get worse before they get better. Over the coming decade, according to the latest Portland State forecasts, Oregon’s counties will avoid significant population losses, although there will be some. That’s the good news. However 11 of our 36 counties will experience a shrinking potential labor force. In 2030, there will be fewer residents available for work and likely fewer workers overall in these counties. A few other counties will see no growth in their potential labor force. Overall, the number of residents available for work in every single county will increase at a slower rate than total population growth due to underlying demographics.

However, the outlook does not call for a downward spiral forever. Once we get past the bulge of upcoming retirements, the outlook improves. In particular, rural Oregon will see the biggest swings and improvements relative to recent years. This is something our office tried to highlight a few years ago.

When it comes to the demographic drag, what matters is aging from one’s 50s to one’s 70s. This is when people go from their peak-working and peak-earning years to nearly everyone being retired. Given demographic trends, including some young adults moving away to urban areas, rural communities are nearly all the way through the demographic drag. You can see this below where the growth rates all pick up considerably for the North Coast, Northeastern, and Southwestern Oregon. Even Southeastern Oregon, which faces the biggest demographic and population growth challenges, goes from losses to relative stability.

Conversely, while urban Oregon will still outpace rural areas, the state’s fastest-growing areas are set to slow down in the coming years. The inflow of new migrants will be slower as migration rates trend down and the demographic drag hits; the Gen Xers and Millennials who moved to Oregon in recent decades will get to retire someday, probably. As such, growth will taper in Central Oregon (Bend mostly) and the Portland region. Oregon’s other urban areas like the Rogue and Willamette Valleys will see relatively steady gains.

Demographics are a very powerful force. For now they are largely pointing in the wrong direction. The EIG report notes that by 2037 two-thirds of U.S. counties will have fewer prime working-age adults than they did in 1997. Here in Oregon we are not immune but are somewhat better off given migration flows. From 2000 to 2040, 14 Oregon counties will have a smaller prime working-age population and 11 of them will have a smaller potential labor force.

A slower-growing and in some places an outright smaller economy is and will be a tremendous challenge. It weighs on the workforce, housing markets, business sales, and public services. That said, if the latest population forecasts are reasonably accurate, the trends will be improving in a handful of years as we reach peak retirements.

Finally, the report dives into a lot more information (do read it) but one item it discusses in educational attainment. Our office looked at this in our Rural Oregon report as well. Now, one potentially complicating factor is the lack of an urban wage premium today for those without a college degree. It is possible that this will further alter migration and demographic patterns but it is still too early to tell if and how much.

Job polarization is the academic term for when high-wage and low-wage jobs grow quickly while good-paying, family-wage jobs bear the brunt of recessions and don’t tend to come all the way back in expansions. Now, some of these changes in the labor market are good news, like the growth in high-wage jobs which has lead statewide gains this expansion. Other changes are relatively benign, like the growth in low-wage jobs which largely serve a growing population that likes to travel and go out to eat more. However the real crux of the issue is when someone loses a middle-wage job and is unable to find another one. This is what makes job polarization so problematic for the economy in recent decades. As our previous research showed, many of the former middle-wage workers dropped out of the labor force entirely and stopped looking for work. This is a terrible outcome for individuals, for their households, and for the economy.

Today I’m not here to rehash all of the job polarization research (see HERE, HERE, HERE, and HERE for starters) but to provide an update based on the recently released 2018 occupational data. As a reminder, these big changes in the economy are best viewed through the occupational lens and not industries — which is how we typically talk about jobs — as these changes cut across all firms and are not confined to a specific industry.

From a big picture perspective, last year’s job growth in Oregon was broad-based across the different groups and similar to what we have seen in recent years. However the good news is that the total number of middle-wage jobs in the state is nearly back to pre-recession levels, although we remain a few thousand short. The population-driven middle-wage jobs, like community service workers, educators, construction workers, repair(wo)men and the like are all back to peak, or nearly so. However, the more business support type middle-wage jobs like production, transportation, and office and administrative support ones are growing again but remain fewer in number than a decade or two ago.

Digging into the data shows that some regions of the state have actually fully regained all of their middle-wage jobs, which was not true a year ago. Specifically, the Bend, Portland and Salem metro areas are now at historic highs for the number of middle-wage jobs. The gains in recent years, like the state as a whole, have been broad-based. All major occupational groups are seeing gains. However production, transportation, and office support jobs are lagging overall. (Except office support is doing quite well in Bend.) The other areas of Oregon are seeing gains as well, but have yet to fully recover their Great Recession losses.

The fact that we now have a few regions that have regained their lost middle-wage jobs, I was curious to see how widespread this was across the country. In updating the polarization data for the nation’s largest metros, I was surprised. From 2007 to 2018, 45 of the 97 metros I have data for have fully regained their middle-wage jobs. Portland’s middle-wage growth ranks 33rd best, but the gains across the nation are more widespread than I first imagined.

Now, when looking at state level data we see that very few states have regained their lost middle-wage jobs. In fact only 9 states today have more than prior to the Great Recession. Another 8 states, including Oregon, are essentially back with either a few more or a few less than a decade ago. That means 33 states are significantly lower today than before the Great Recession.

In thinking this through, these findings do fit the overall pattern of growth this expansion. The nation’s largest metro areas turned around first after the recession and have seen the strongest gains overall. Given that many middle-wage jobs are in part driven by population growth, the fact that the big cities have seen the best employment and population gains means they are also more likely to recover their middle-wage jobs. Now, many of the nation’s secondary metros and rural areas are growing again — at least here in Oregon and across the West — but their overall gains are less pronounced than the big urban centers over the past decade.

Finally, in thinking more about growth in rural areas and after giving a few presentations lately, I wanted to share an Eastern Oregon version of the job polarization chart. As I tell audiences, this pattern of job growth is seen in every single area or region that I have looked at. High-wage and low-wage job growth dominates, while middle-wage jobs lag. The main difference is urban areas see the strongest high-wage gains, even as the polarization pattern is evident everywhere. Note: Eastern Oregon here includes all counties east of the Cascades excluding Deschutes.

Speaking of rural areas, I am currently in the process of updating our potential labor force figures by county based on new population data and forecasts. Stay tuned for more on that in the coming weeks.

Posted by: Josh Lehner | April 5, 2019

Oregon Exports, Strong Dollar and Trade Tensions

The Port of Portland, in conjunction with Business Oregon and our office, just put out a press release covering the latest trends for Oregon exports. There is a lot of good nuggets of information included in the release. Do read the whole thing. Our contribution largely related to the impacts, or lack thereof, of the tariffs and strong dollar. What follows below is the summary our office pulled together as part of our latest forecast materials.

The strong U.S. dollar and ongoing trade tensions are worrisome but not yet problematic or detrimental to the Oregon economy overall. Oregon tends to rank 10th highest, or so, nationwide when it comes to the value of exports as a share of state GDP. Additionally, the economic impact is larger than this as many other states’ products ship through Oregon on their way to destinations along the Pacific Rim.

China and Canada remain the number one and two destinations for Oregon made products, respectively. Combined they account for more than one-third of all Oregon exports. And for the time being at least, there is good news for Oregon firms exporting to both markets.

First, exports to Canada have rebounded strongly in the past 18 months. These gains are driven by heavy manufacturing exports (machinery, transportation equipment, and metals) which have historically accounted for half of all Oregon products sent north. Much of the recent increases can be tied to heavy trucks.

Second, despite the ongoing trade tensions with China, Oregon exports have yet to see any declines. This is not true at the national level. However only about one-third of Oregon exports headed to China are subject to proposed or enacted tariffs. Such exports, at least for the time being, are holding steady. Importantly, many of Oregon’s top exports are not subject to tariffs and are seeing ongoing gains in trade, including electrical and industrial machinery.

Given the strong dollar and global growth, it should be expected that Oregon’s total exports will slow moving forward. This is particularly true for the state’s non-technology exports which more closely follow the business cycle and not the product development cycle of each new generation of chips. Should trade tensions rise further, and/or the dollar continues to appreciate, Oregon exports may decline outright. Exchange rates have cooled some in early 2019 following their peak in December. Our office will continue to monitor these trends to gauge their impact on the U.S. and Oregon economies.

Posted by: Josh Lehner | April 4, 2019

Oregon’s Income Distribution

Oregon’s income gains this expansion are among the best in the nation, as our office has highlighted in recent years. The state’s median household income now matches the U.S. for the first time since the mills started closing in the 1980s. The single largest factor underlying this growth is the strong labor market. For individuals and households in the middle of the distribution their primary and at times only source of income is wages. So the strong household income gains are driven by more Oregonians working more hours and at higher pay. The state’s average wage, while lower than the nation’s, is back to the same relative position as in the 1970s.

While all of these high level points have been well-covered, they do rely on medians and averages. We don’t look across the entire income distribution as often. So today I wanted to provide a few new and updated looks at the data to show how broad-based these gains have been.

First, let’s compare Oregonian household incomes across the entire distribution to their national counterparts. In the latest Census data, Oregonians in the bottom 55% (or those with incomes of $67,000 or less) have similar or higher incomes than their national counterparts. Oregonian households in the top third and particularly the top 10% have lower incomes.

Now, one major factor influencing Oregon’s per capita personal income are the relative incomes at the very top of the distribution. Make no mistake, Oregon’s highest-income households have done well financially. But even in recent years, Oregon’s Top 1% or Top 5% of households have not closed the gap with their national counterparts. This gap among the richest households is large enough, and their incomes are high enough, to weigh on Oregon’s overall per capita personal income figures even as Oregonians in the bottom two-thirds of the distribution earn similar or higher incomes.

The good news here is that Oregon has seen broad-based gains in recent years. These improvements across the entire distribution have raised Oregon’s per capita personal income to it’s highest level, relative to the U.S., since before the dotcom crash in 2001. All of this despite the ongoing gap at the top-end.

Next, given Oregon’s median household income today matches the U.S., I was curious how Oregon’s distribution looked the last time this was true, back at the 1980 Census. Same type of chart looking at Oregonians and their national counterparts across the entire distribution.

Four things stand out.

First, comparing the latest 2017 data to the last time we looked at this in 2014, you can see the broad-based gains in recent years. At all points in the distribution, Oregon’s gains have outpaced the nation’s. (Difference between gray and dark blue lines.)

Second, Oregonians in the 20th through 65th percentiles have the same exact relative positions today as back in 1980.

Third, national income gains for the lowest-income households have outpaced Oregon gains during this time, but Oregonians are still doing relatively better overall.

Fourth, the gap at the top-end of the spectrum has widened over time. As just mentioned above, this is the driver behind the per capita income trends. It is not about job growth or wages for the typical worker, but about relatively smaller gains for the very highest-income households. In part this reflects the fact that Oregon is not a financial center, nor do we have a lot of multinational headquarter operations.

Finally, I was asked recently about income gains across the distribution in the Portland region. So I crunched some Census data and you can see the changes in the past decade for a few select percentiles. As expected, higher-income households have seen the biggest gains. This reflects the fact they saw fewer losses, but also enjoy a more diverse source of income in the form of wages, capital gains, investment properties and the like. We know that non-wage income growth has outstripped wage gains in recent decades. That said, households incomes across the entire spectrum are higher today in the Portland metro than before the recession even after adjusting for inflation.

Note that the decline in incomes at the 10th percentile in 2017 are also evident in the statewide data, as well as in Eugene. For now, given the ongoing strength in the labor market, this is likely an outlier data point that will be reversed when new data is released this fall. However we do not know for sure and this is something our office is monitoring closely.

I also took a similar look at other metros in Oregon, click on the links for the corresponding charts. In Bend incomes at all points in the distribution are back to pre-recession levels. In Eugene, incomes are up although we see declines at the bottom-end in recent years. Again, likely due to noisy data, but we shall see. And in Medford, where wage and income growth has lagged, we find incomes at the top rising quickly while all other points remain lower.

In terms of the outlook, expectations are for Oregon’s relative income positions to hold steady in the coming years. The primary reason for this is that Oregon’s average wages have already accelerated in recent years, even as U.S. wages have recently picked up. Our office expects Oregon’s average wage to continue to increase by 4 percent per year. However as the U.S. accelerates closer to Oregon’s annual rate, Oregon’s growth advantage in recent years will lessen.

Note that our office previously looked at wealth, its sources and implications, and a deeper dive into home equity gains in the Portland area. It’s been a few years since we last wrote about estate taxes here on the blog, so stay tuned for an update on that in the coming weeks.

No need to bribe me for this edition of the Graph of the Week. That said, it is clear that every year of education pays off for individuals in the form of higher wages. Most of this is due to increased skills learned in the classroom and the types of jobs someone becomes qualified for. Although some of the gains are likely due to signalling, which is what economists call the fact that part of obtaining a college degree or completing a certificate program is that it signals to an employer that this person can work hard, operate on a schedule, and complete tasks which aren’t so much about technical skills as they are about soft skills and work ethic.

Given educational attainment is rising in Oregon (for both the Oregon-born and for in-migrants) this bodes well for future economic growth. The complicating factor of course is student loan debt which has risen in recent decades. The college graduate wage premium has declined some when examining age cohorts, but it does remain near historic highs. That said, it takes longer to repay the costs of college due to rising tuition and the like. And in a seemingly-good-news-but-is-really-bad-news way, student loan debt overall is growing slower. This, however, has to do with the fact that enrollments are down and not expected to pick up until the next recession. Regardless, individuals with more years of schooling on their resumes do earn higher wages in the labor market as seen in this edition of the Graph of the Week.

Posted by: Josh Lehner | March 20, 2019

Urban Wage Premium, Pacific Northwest Edition

New research from MIT’s David Autor has set the economics profession on fire in recent months. The reason is it furthers our understanding of the impacts of job polarization, wage stagnation and the implications this has on migration and the urban-rural divide. What follows is a summary of his new research through a Pacific Northwest lens.

A generation ago, workers of all stripes earned higher wages in large, urban areas. There was an economic incentive for individuals to move to cities. Workers responded accordingly and our metro regions have thrived.

This urban wage premium was largely about the types of jobs available. Urban areas contained most of the good-paying, middle-wage jobs as that was where businesses were headquartered and operated. As Autor writes:

“In the decades following WWII, there was a steep, positive urban gradient in the skill level and wage level of non-college jobs. Non-college urban adults disproportionately held middle-skill, blue-collar production and white-collar office, administrative, and clerical jobs. Because these workers labored in close collaboration with the high-skill, urban professional, managerial, and technical workers who oversaw factories and offices, middle-skill jobs for non-college workers were prevalent in cities and metropolitan areas but scarce in suburbs and rural labor markets.”

However, in recent decades there has been a decline in these types of jobs due to job polarization. As is well known, these changes have impacted traditional blue-collar, male dominated occupations like production — the manufacturing jobs that actually do the manufacturing. However it impacts women to the same degree due to the loss of office support jobs. These shifts can largely be traced to automation and technological change, however Autor notes that offshoring, erosion of bargaining power, falling real minimum wages, and the fissuring of the workplace also play a role.

The problem with job polarization is not just the loss of a middle-wage job, it’s when that worker is unable to land a similar paying job in its place. Autor’s research finds that “almost all occupational change among non-college workers reflects a movement from the middle toward the bottom of the occupational distribution.” This is in-line with what we found HERE and HERE in Oregon as well. These adjustments are disheartening as most Oregonians either end up taking a low-wage job or drop out the labor force entirely (1/3 of women, up to 2/3 of men). Autor writes that this process depresses wages in two ways. First, by taking a low-wage job, a worker simply earns less. Second, the labor pool is larger and as the supply of potential workers outstrips demand, the price (wage) falls.

The result is that workers today without a college degree perform the same tasks in urban areas as they do in more rural areas. As such, they are paid the same relative wages. A high school graduate working in Pendleton or Sequim earns the same as their counterpart in Portland or Seattle. There is no longer an urban wage premium for workers without a college degree. All of this before housing and the cost of living are taken into account.

Note: The data are based on PUMAs and the horizontal axis shows population on a log scale. Neither of these are intuitive. But as you move left to right on the horizontal axis you go from rural areas to urban ones. For some context, all of Eastern Oregon and Eastern Washington (ex Tri-Cities and Spokane) are in the 1-3 range. Boise, Eugene, and Medford are around 4. The Portland and Seattle areas are 5+.

So what are the implications of these changes to the economy and will these trends reverse?

Well, without a financial incentive, workers without a college degree will continue to move to urban areas less frequently. This reduces the relative labor supply in cities, placing more pressure on firms looking to fill low-wage jobs. In the past year or two we have seen a big rise in employment rates for individuals with a high school diploma or less and wages are rising the fastest at the lower end of the spectrum. Conversely this shift raises labor supply in smaller metros and rural areas, supporting stronger overall growth in these locations.

This sorting by job opportunities, educational attainment and the like is not complete, but is ongoing. The combination of high housing costs and low wages, or low-wage opportunities drives much of it. The economy is searching for a new equilibrium. As Marginal Revolution‘s Alex Tabarrok points out some of these changes are endogenous. That is, firms who do not have be located in expensive urban areas have located elsewhere, hence some of the decline. Autor points this out as well and highlights that manufacturing jobs have shifted out of cities into suburbs and other areas as transportation networks improved. But for now these trends point toward young college graduates continuing to drive population growth in Portland and Seattle, while the other regions in the Pacific Northwest should see more balanced gains.

Finally, I must note that Autor himself calls for further research into these processes and findings. He provides strong evidence of the likely dynamics behind these trends, but does not say this is the only possibility. In particular an occupation is not a labor market. Urban areas are not truly independent of rural ones. Everything is interconnected. Just because demand for one type of work or in one location declines, it does not necessarily mean it hampers trends across the entire economy. Given how relevant this research is to many different policy areas, I suspect we will see lots of papers fleshing out this research in the coming years.

Bottom Line: Obviously we, as a society, have know about some of these dynamics for a long time. What is new is how Autor combines these insights to look at how job polarization and geography meet, overlap, and intertwine. What he finds is highly informative and can largely explain big picture trends in recent decades. As such, the research is also depressing. The good news is that a strong economy does work wonders, even if does not cure all ills. Job polarization is most evident in recession. During expansions, middle-wage jobs do grow, particularly those driven by population gains, but they do not fully regain their share of the labor market.

Posted by: Josh Lehner | March 13, 2019

Industrial Diversification in Oregon

Last month we examined industries and regions in Oregon that grow faster (or slower) and are more volatile (or stable) than the overall economy. Today we follow up with a look at industrial diversification and how that has changed over time in Oregon.

First, when we look at industrial diversification, economists typically look at how many jobs are in each sector of the economy. A more diverse region has a smaller number of jobs in a lot of different sectors (e.g. manufacturing, health care, etc) while a less diverse region has a large number of jobs in just one or two sectors (think oil in North Dakota today, or timber in Oregon in the 1970s).

Second, in and of itself, industrial diversity is not necessarily good or bad. If a regional economy has one big industry, like North Dakota today or Oregon in the 1970s, the region can do extremely well when that one industry is booming. The problem arises when your one key sector is down. Then your regional economy suffers more as there are fewer other types of businesses to drive growth. This tends to make less diverse economies more boom-bust. Depending upon the duration of the cycles, this is either a net win or net loss relative to the rest of the country.

Third, it is hard to predict what type of shock will hit the economy in the future. Depending upon what exactly is the catalyst for recession — think technology in 2001 and housing in 2007 — a regional economy may do better or worse depending upon how reliant the region is on that particular sector. For example here in Oregon during the 2001 recession the Portland region was hit particularly hard due to its high concentration of tech manufacturers. The rest of the state experienced significantly smaller recessionary impacts. Similarly during the Great Recession Bend and Medford were hit especially hard given they experienced two of the nation’s biggest housing bubbles. Other parts of the state were not spared, but saw relatively fewer losses.

Overall a more diverse economy is better able to withstand different types of recessions, especially given we cannot accurately predict the nature of the next shock years in advance. Spreading a region’s eggs across more baskets tends to be more resilience over the long run.

The next two charts try to show how Oregon and some of our regions are doing on diversity. What the charts measure is the local mix of industries relative to the mix of industries nationwide. A value of 1.0 means the local mix is perfectly aligned with the U.S. mix. The U.S. overall does have a broad-based economy when compared internationally. A given region will never perfectly match the U.S. given we do have some regional specialization (autos in the Midwest, timber in the PNW, finance in NYC, etc). But values closer to 1.0 mean a more diverse economy overall.

Across Central Oregon, industrial diversification is at record highs. Bend’s evolution from a small timber town to a fast-growing metropolitan area is clearly seen in the data. Keep in mind that the U.S. overall (the baseline comparison here) is continuing to evolve, so when a region’s line increases in the chart, that region is diversifying at an even faster pace than the nation.

In Prineville (where I am giving a presentation this morning) they do see lower levels of diversification being a smaller, rural economy. They have higher rates of natural resources and federal government (land management), and lower rates of more urban industries like finance and professional and technical services. Crook County’s lower levels of diversification are also seen in manufacturing. Overall Crook’s manufacturing sector is nearly identical in size to the U.S. (proportionately). However 75% of Crook’s manufacturing is wood products, while the U.S. as aerospace, autos, metals, semiconductors and the like. All of that said, Crook County’s industrial diversification has nearly quadrupled in recent decades. Hopefully this bodes well for future business cycles.

On the other hand, the Portland regional economy is pretty diverse and broad-based today, more so than many parts of the country. However from this high level of diversity, Portland is not increasingly becoming more like the nation. Now, Portland does retain some specialities like semiconductors, the outdoor apparel cluster, and the like. But overall, Portland’s evolving industrial structure is matching trends with the country.

Finally, it is important to keep in mind that there are good and bad ways a regional economy can become more diversified. The good way is when a new business opens up and brings with it jobs and investments from a sector the region didn’t have before — think of the software jobs in Portland or the data centers in Prineville. These communities are more diverse today due to these newly created jobs.

Conversely, a region can become more diversified and more like the U.S. if it loses its specialty industries — think of the timber decline here in Oregon. Today we are more like the U.S. mostly due to growing jobs in other sectors, but also in part due to the loss of timber jobs which mathematically makes us more like the nation as a whole. You can literally see the old mill closure in the Bend chart above. In Crook County back in 1978 a full 50% of private sector jobs were logging or wood products, whereas today it’s closer to 12% of private sector jobs.

Overall, a diverse regional economy is better able to withstand different types of recession and be more resilience over the long run. Even so, it is clear that diversification can be a two-edged sword.

Stay tuned as we will highlight some new research that touches on the impacts of this bad type of diversification and also ties in with the educational attainment, wages and migration discussed earlier this week.

Posted by: Josh Lehner | March 11, 2019

Educational Attainment Continues to Increase

A few years ago we looked at educational attainment across generations here in Oregon. What it showed is that educational attainment is increasing over time. That is, Millennials are obtaining college degrees at higher rates than Gen X which did so at higher rates than Boomers and the like. In the latest Census data these trends continue. Millennials in Oregon today are well on their way to reaching and surpassing the 40% mark with a Bachelor’s degree or higher. In fact the 1985 birth cohort is currently sitting at 39% at age 32, while the 1990 birth cohort is at 36% at age 27, both of which are records for the fastest pace to reach these marks.

However, we also know two other items: Oregon is magnet state, and migration is strongest among young, college graduates. All of these facts combined have been gnawing in the back of my brain for years now. I have been curious as to the educational attainment of native born Oregonians. It is possible, even plausible that the rise in educational attainment across the state is largely driven by the in-migrants. Does Oregon’s lower high school graduation rate, shorter school year and the like impact outcomes for higher education as well? So to the data we turn.

I want to highlight this gap in attainment between migrants and the native born population to illustrate the compositional effect migration has on statewide totals and how migration may mask diverging trends. But first we must point out that Oregon-born Millennials have approximately the same, albeit slightly lower levels of educational attainment than their national counterparts. Today, 34.3% of Oregon-born 25-34 year olds hold a Bachelor’s degree or higher, while the national figure is 35.6%. However, migrants moving into or out of Oregon have substantially higher levels of attainment as seen in the chart below. And given that the Oregon-born who leave the state have high levels of attainment, it means that the Oregon-born who remain here have lower levels. This is entirely due to the compositional effect of migration, which, again is all about young, college graduates. The gap is not necessarily about lower outcomes.

It is important to remember that Oregon is a magnet state. The inflow of young households is significantly larger than the outflow. Even with similar educational attainment among the movers going in either direction, Oregon’s educational attainment rises overall due to the net influx.

There are two pieces of good news here. First is that if we look at educational attainment of native born Oregonians, it is rising over time like national trends. Now, the chart below just looks at current Oregon resident who were also born in Oregon (my data download is missing those who moved out of state, but we know those folks have even higher rates of attainment). The gap between current residents born in Oregon and born outside of Oregon remains large (as seen in the first chart). This gap is 5-10 percentage points, but is not widening over time or by age cohort, or at least not in the available data.

The second piece of good news is that there does not appear to be a wage differential between the Oregon-born and migrants. Or at least not once we control for age, educational attainment, and occupation. This is important to keep in mind because one of the underlying goals of economic development is not just to improve job opportunities and outcomes overall, but to specifically improve them for a region’s current residents. As we touched on with Raj Chetty’s work on economic mobility, job growth by itself is not enough to improve outcomes. One reason is that economic conditions for current residents may remain relatively unchanged while new residents fill the newly created jobs. We know that the latter part does happen, but it is important to check in and see about the former. And at least in a preliminary look at wages among the prime working-age population in Oregon, this does not appear to be a significant issue.

Stay tuned, there is actually a tie-in of this look at educational attainment, migration and wages to some future work we’re doing.

Posted by: Josh Lehner | February 27, 2019

Economic and Revenue Forecast, March 2019

This morning the Oregon Office of Economic Analysis released the latest quarterly economic and revenue forecast. For the full document, slides and forecast data please see our main website. Below is the forecast’s Executive Summary.

The U.S. economy experienced strong economic growth in 2018. Unemployment remains near historic lows even as participation rates rise. Wage growth continues to pick up along with employment rates. The economy will set a new record for length of expansion this summer at ten years old. The next recession is not yet seen in the data. The outlook calls for ongoing, but slowing growth this year and next. The fading federal fiscal stimulus and business investment slowdown take the wind out of the sails, as does the impact of past interest rate increases. The key to the near-term forecast is the Federal Reserve and the U.S. consumer.

Right now the Fed is reassessing the economy given somewhat weaker U.S. data and ongoing international issues like trade tensions and slowing in China and Europe. Concerns over the U.S. consumer are higher today due to weak sales data at the end of 2018 and somewhat higher delinquency rates. However, given the ongoing, robust labor market gains, consumer spending is likely to hold up and is the key driver to growth in 2019.

Oregon’s economy continues to hit the sweet spot. Job growth has tapered more than expected over the past year, but remains strong enough to hold the unemployment rate near historic lows. Local wage growth outpaces national figures due to the strong labor market. With more Oregonians working more hours and for higher pay, household incomes are reaching historic highs on an inflation-adjusted basis. Even as disparities remain, these gains are seen by all ages and racial or ethnic groups across the state. The feel good part of the economy is here.

With a little more than four months left in the 2017-19 biennium, Oregon’s General Fund revenue picture remains uncertain.  Given Oregon’s dependence upon personal income tax revenues, the jury will remain out until the bulk of payments are received and processed in April and May.

The tax filing season has just begun. Refunds got off to a slow start and the average refund is 11% lower so far this year, in part due to no kicker being paid out. Most year-end tax payments won’t arrive for at least another month. Although April surprises are commonplace, this year’s outlook is particularly uncertain. Federal tax law changes, volatile equity markets, a nationwide dearth in recent estimated payments and strong growth in withholdings are all acting to muddy the outlook this tax season.

Corporate collections have surged to an all-time high in recent months, due in part to temporary factors. Repatriation of foreign earnings required by the new federal tax law have increased collections by around $100 million.  However, the temporary repatriated earnings alone cannot explain the full increase in corporate collections, suggesting that some of the change may be persist going forward.  Federal tax law changes have likely expanded the corporate tax base in Oregon, which will lead to additional revenues in the years ahead.

While the revenue forecast is relatively unchanged in the currently 2017-19 biennium, our office is forecasting both a personal and corporate kicker. The personal kicker is projected to be $748 million which will be paid out on tax returns in early 2020. The corporate kicker, which is dedicated to education spending in the upcoming biennium, is currently estimated at $353 million. Given tax season has just begun, these figures could change by May 15th, the final forecast for the legislative session.

Heading into the next biennium, uncertainty about the performance of the regional economy will become paramount.  Growth will certainly slow to a sustainable rate in the coming years, but the path taken is unknown.  Capacity constraints, an aging workforce, monetary policy drags and fading fiscal stimulus will all act to put a lid on growth a couple of years down the road.  However, the exact timing and steepness of this deceleration is difficult to predict, leading to a wide range of possible revenue outcomes for the 2019-21 budget period.

See our full website for all the forecast details. Our presentation slides for the forecast release to the Legislature are below.

Posted by: Josh Lehner | February 22, 2019

Fun Friday: Eds and Meds

Yesterday we took a quick look at industry growth and volatility in Oregon. Two sectors really stood out for their strong gains and stability: education and health. Both have risen twice as fast or more than total employment in Oregon in recent decades. However there is a clear reason for these gains: demographics. When you adjust education and health employment for population the exceptional growth doesn’t look so exceptional. In fact it looks downright mundane. A growing population with an increasing share of retirees, and rising rates of educational attainment means we need more workers serving these groups.

Now, one tangent I find interesting/perplexing/depressing is when communities, usually smaller and/or rural, do market analyses about growth opportunities, the consultants always come back with the same answer. That is they should try and turn themselves into a hub for tourism, health care, or education. This is somewhat of a circular reference, however. The sectors that are growing pretty much everywhere are health care (people age in every county) and leisure and hospitality (people go out to eat and travel). However this largely reflects sectoral shifts.

Building a broader cluster or hub around these industries is possible, but it is not replicable in every community. There can be assisted living facilities everywhere, and even hospitals in many places, but only one or two can have a Level IV or V Trauma Center. Colleges and Universities are great but only a handful exist in each state. Similarly every community cannot be a tourism hub. Historically it has worked well for Bend and Hood River, but that means it is more difficult for surrounding communities given their close proximity. And communities further from highways and airports face logistical challenges even if the outdoor recreation opportunities are stellar. It is not quite a winner takes all scenario, there are agglomeration effects, but it is also not entirely symbiotic either. And all of this is before digging into the types of jobs created, their wages and the like. /rant

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